Ruling 91-15

Intercompany Dividend

FACTS:

The Company files a Connecticut combined corporation business tax return with its U.S. subsidiaries. All U.S. entities included in the federal consolidated income tax return are included on the Connecticut combined return.

Subsidiary, which is wholly-owned by the taxpayer and does business within and without Connecticut, will distribute a dividend to the Company during the Company's fiscal year ending April 30, 1991.

The Company charges and/or credits all of its Connecticut taxable income/loss to its various operating subsidiaries based on a formula established by the Department during a prior audit (the gross receipts of each subsidiary compared to aggregate gross receipts). Therefore, at the end of each fiscal year, the Company has no taxable income/loss because all income/expenses have been reallocated to its subsidiaries. The Company will continue to charge back its expenses and/or income to these subsidiaries in future years including the fiscal year ending April 30, 1991.

Foreign sales corporation dividends received by the taxpayer are reallocated to the related supplier subsidiaries on the basis of commissions paid, resulting in the disallowance of commission expense (at the related supplier level) in an aggregate amount equal to foreign sales corporation taxable income, pursuant to Conn. Gen. Stat. Sec. 12-226a and consistent with a prior examination determination by the Department.

ISSUE:

Whether expenses incurred in connection with a dividend to the Company from a wholly-owned subsidiary are subject to disallowance pursuant to Sections 12-223a, 12-226a or 12-217(a)(D) of the Connecticut General Statutes.

RULING:

Based on the above facts, pursuant to the elimination of taxable income and expenses of the Company by reallocation among its subsidiaries, no expenses related to the payment of this dividend will be added back to the taxable income of the Company.

LEGAL DIVISION

April 18, 1991